If borrowers can pay their mortgage via credit card, will they? One company, San Francisco-based ChargeSmart LLC, is betting that the answer is "yes." The company, whose service also targets auto and student loans as well as utility bills, said Wednesday morning that it will allow borrowers to pay their mortgage via a Visa or MasterCard through a network of more than 4,000 billers across the United States.
The company isn't the first to push credit card payments of mortgages. Last year, American Express announced a pilot program with Indymac Bancorp Inc.(IMB) and American Home Mortgage that allowed prime borrowers the option to enroll at origination in a program to pay their mortgage via their American Express card.
Representatives at AmEx did not return phone calls by the time this story was published; the fate of the pilot program is uncertain, given that both lenders involved have since exited the mortgage origination business or filed for bankruptcy.
Another San Franscisco-based company, CardIt LLC, rolled out a similar payment service in September of last year, targeting one-time consumer mortgage payments. The company is no longer in business, although it was largely panned by industry participants for catering to troubled borrowers -- underscoring that while the opportunity for credit card processing may be massive, successfully capitalizing on it can be a tall order.
Fees, borrower concerns
Part of the problem slowing the use of credit cards to pay mortgages has been the fees typically charged to do so; ChargeSmart, for example, charges a per-transaction fee of $4.95 plus a reserve balance charge of 2.29 percent of the transaction amount.
Nonetheless, industry sources say that payment services like ChargeSmart could give troubled borrowers an ability to either more appropriately manage their finances -- or dig themselves into a deeper hole.
"Our offering is perfect for the individual who may experience an unexpected lifestyle change such as a temporary income interruption or fluctuation," said Mitch Friedman, co-founder of ChargeSmart, "or for the savvy consumer who wants to earn rewards for the ease of using his or her credit card for payment."
A source at a credit counseling agency that asked not to be named in this story said such a service could possibly work well for some troubled borrowers, provided that "using the charge card is only a temporary bridge into a more complete debt management program that doesn't rely on consumer credit."
"But using a service like this to shift unpaid debts around can be a very dangerous move," she cautioned. "It can pile more debt up over existing debt."
Others scoffed at the idea, and said ChargeSmart was merely looking to take advantage of borrowers facing their last rope.
"You can't tell me that a good credit risk is going to pay 2 or more percent for the privilege of putting their mortgage onto their Visa," said one bank executive, who asked not to be identified. "This is a service that is going to pull in troubled borrowers looking to make just one more mortgage payment before defaulting on both secured and unsecured debts."
Friedman said that the service checks a consumer's credit before allowing them to use the service, however, and suggested that he doesn't see troubled borrowers as ChargeSmart's core customer base.
"We expect the majority using the site to use it for convenience," he said in an interview with HW Wednesday morning.
For savvy consumers, Friedman said, a service like ChargeSmart can help consumers take advantage of an interest-free 30-day float on their mortgage payments -- more than enough to offset the fees associated with charging.
"We've tried to set our fees as low as possible to reach as many people as we can," he said.
At least one thing is clear; there is a market for charging mortgages to a credit card. The question is whether that audience is the savvy consumers ChargeSmart is targeting, or the less-savvy borrower already in financial distress and facing imminent default.
For more information, visit http://www.chargesmart.com.
Disclosure: The author held no positions in IMB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Commentary

With the recent turnover in leadership at the Federal Housing Finance Agency, we may be standing at the precipice of great change in the government’s role in supporting the mortgage market through Fannie Mae and Freddie Mac.